================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 7 , 2000 OCCIDENTAL PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-9210 95-4035997 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 10889 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (Address of principal executive offices) (ZIP code) Registrant's telephone number, including area code: (310) 208-8800 ================================================================================
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS - ------ ------------------------------------ As previously reported, on March 7, 2000, Occidental Petroleum Corporation ("Occidental") entered into an agreement to acquire all of the common partnership interest in Altura Energy Ltd. ("Altura"), the largest oil producer in the state of Texas. Altura has proved reserves of approximately 850 million barrels of oil equivalent, which are located in the Permian Basin. The transaction, valued at approximately $3.6 billion, closed on April 19, 2000. Occidental, through its subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership interest and control of the general partner which manages, operates and controls 100 percent of the Altura assets. The partnership borrowed approximately $2.4 billion, which has recourse only to the Altura assets. The partnership also loaned approximately $2.0 billion to affiliates of the sellers, evidenced by two notes, which provide credit support to the partnership. The sellers retained a preferred limited partnership interest of approximately $2.0 billion and are entitled to certain distributions from the partnership. An affiliate of BP Amoco plc also retained a non-controlling interest in the general partner that manages Altura. As a result of the acquisition, Occidental's worldwide oil production for 2000 will rise to 480,000 barrels of oil equivalent per day, a 13 percent increase above the average for 1999. In addition, Occidental's worldwide proved reserves are expected to increase to approximately 2.2 billion barrels, on an oil-equivalent basis. 1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ------- --------------------------------- (a) Financial statements of business acquired. Altura Energy Ltd. Audited Financial Statements for the years ended December 31, 1999 and 1998 and for the period from March 1, 1997 to December 31, 1997 together with the report of Ernst & Young LLP thereon (the "Altura Financial Statements") (attached as Exhibit 99.1 hereto). (b) Pro forma financial information. The following unaudited pro forma financial information has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. This transaction has been reflected as if it had occurred for financial position purposes on December 31, 1999 and for results of operations purposes on January 1, 1999. These pro forma financial statements do not reflect anticipated cost savings, synergies, changes in realized prices or production rates or certain other adjustments that may result from the acquisition of the Altura interest. The historical financial information for Occidental has been derived from Occidental's audited financial statements for the year ended December 31, 1999, incorporated by reference in Occidental's Annual Report on Form 10-K for the year ended December 31, 1999 (the "Form 10-K"). The historical financial information for Altura has been derived from the audited Altura historical financial statements included in this filing. The unaudited pro forma financial information should be read in conjunction with Occidental's historical financial statements incorporated by reference in the Form 10-K, and the Altura historical financial statements. The pro forma information is not necessarily indicative of the results or the financial position that would have been obtained had the transaction actually occurred on the dates specified above. In addition, such pro forma information does not purport to project Occidental's results of operations or financial position as of any future date or for any future period. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the accompanying pro forma financial statements based on available information. The actual allocation of the purchase price and the resulting effect on income from operations may differ from the pro forma amounts included herein. These pro forma adjustments represent Occidental's preliminary determination of purchase accounting adjustments and are based upon available information and certain assumptions that the Company believes to be reasonable. Consequently, the amounts reflected in the pro forma financial statements are subject to change. 2
1. Unaudited Pro Forma Results of Operations of Occidental for the year ended December 31, 1999, reflecting the acquisition of the Altura interest. UNAUDITED PRO FORMA RESULTS OF OPERATIONS * (IN MILLIONS, EXCEPT PER-SHARE DATA) Occidental Altura Occidental* Historical Historical Pro Forma For the For the For the Year Ended Year Ended Pro Forma Year Ended 12/31/99 12/31/99 Adjustments 12/31/99 - --------------------------------------------- ----------- ----------- ----------- ----------- Revenues $ 8,552 $ 845 -- $ 9,397 Costs and other deductions Cost of sales 5,059 321 -- 5,380 Selling, general and administrative, and exploration expense 720 43 -- 763 Write-down of assets 212 -- -- 212 Depreciation, depletion and amortization of assets 805 145 $ 69 (1) 1,019 Minority interest 58 -- 129 (2) 187 Interest and debt expense, net 499 -- 94 (3) 593 ----------- ----------- ----------- ----------- 7,353 509 292 8,154 ----------- ----------- ----------- ----------- Income(loss) from continuing operations before taxes 1,199 336 (292) 1,243 Provision for domestic and foreign income and other taxes 631 -- 5 (4) 636 ----------- ----------- ----------- ----------- Income(loss) from continuing operations 568 336 (297) 607 Preferred dividends (7) (7) Effect of repurchase of Trust Preferred Securities 1 -- -- 1 ----------- ----------- ----------- ----------- Earnings(loss) from continuing operations applicable to common stock $ 562 $ 336 $ (297) $ 601 =========== =========== ============ =========== Basic earnings per common share from continuing operations $ 1.58 $ 1.69 =========== =========== Average shares outstanding (in thousands) 355,400 355,400 =========== =========== Diluted earnings per common share from continuing operations $ 1.58 $ 1.69 =========== =========== Average shares outstanding (in thousands) 355,500 355,500 ============================================= =========== =========== (1) Reflects the inclusion of additional depreciation, depletion and amortization expense to be recognized based on a preliminary purchase price allocation for the Altura interest. (2) Reflects the inclusion of preferred minority interest distributions to the affiliates of the sellers. (3) Reflects the inclusion of (a) $67 million of additional interest expense expected to be incurred by Occidental on long-term debt of approximately $1.2 billion, based on an estimated weighted average interest rate of approximately 5.6 percent, incurred in connection with the Altura transaction and (b) the additional net interest expense of $27 million that Altura will record on the debt of $2.4 billion, based on an estimated weighted average interest rate of approximately 6.33 percent, partially offset by the interest income earned on the $1.968 billion notes from affiliates of the sellers, based on an estimated weighted average interest rate of approximately 6.43. (4) Reflects the inclusion of additional income tax expense of $15 million calculated by applying the statutory tax rate to Altura's pro forma pretax income offset by a tax credit of approximately $10 million from enhanced oil recovery operations related to the acquisition. * These pro forma financial statements do not reflect reduction in interest expense resulting from the repayment of pro forma debt using asset sale proceeds including proceeds from the recent disposition of Canadian Occidental Petroleum interests and Peru producing operations. Additionally, these statements do not reflect anticipated cost savings, synergies, changes in realized prices or production rates or certain other adjustments that may result from the acquisition of the Altura interest. 3
2. Unaudited Pro Forma Statement of Financial Position of Occidental as at December 31, 1999, reflecting the acquisition of the Altura interest. UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION * (IN MILLIONS) Occidental Altura Occidental* Historical Historical Pro Forma Pro Forma 12/31/99 12/31/99 Adjustments 12/31/99 - ----------------------------------------------------- ----------- ----------- ----------- ----------- Assets Current assets $ 1,688 $ 183 $ 7 (1) $ 1,878 Long-term receivables, net 168 -- 1,968 (2) 2,136 Equity investments 1,754 -- -- 1,754 Property, plant and equipment, net 10,029 2,039 1,612 (3) 13,680 Other assets 486 -- 8 (4) 494 ----------- ----------- ----------- ----------- $ 14,125 $ 2,222 $ 3,595 $ 19,942 =========== =========== =========== =========== Liabilities and Equity Current maturities of long-term debt $ 5 -- $ 200 (5) $ 205 Current liabilities 1,962 $ 142 -- 2,104 Long-term debt, net 4,368 -- 3,396 (6) 7,764 Deferred and other domestic and foreign income taxes 995 -- -- 995 Other deferred credits and other liabilities 2,534 92 (20)(7) 2,606 Minority interest 252 -- 2,007 (8) 2,259 Redeemable trust preferred securities 486 -- -- 486 Stockholders' equity 3,523 1,988 (1,988)(9) 3,523 ----------- ----------- ----------- ----------- $ 14,125 $ 2,222 $ 3,595 $ 19,942 ===================================================== =========== =========== =========== =========== (1) Reflects the inclusion of (a) proceeds of $2.4 billion from debt incurred by the Altura partnership, (b) a $1.968 billion cash loan to the sellers in exchange for note receivables, (c) capital distributions of $620 million paid to the sellers and (d) approximately $195 million of other preliminary purchase price adjustments. (2) Reflects the inclusion of notes receivable issued to the Altura partnership by sellers. (3) Reflects the inclusion of a preliminary purchase price adjustment to record property, plant and equipment at estimated fair market value. (4) Reflects the inclusion of capitalized loan fees related to the debt incurred by the Altura partnership. (5) Reflects the inclusion of the current portion of the $2.4 billion of additional debt incurred by the Altura partnership, which is recourse only to the Altura assets. (6) Reflects the inclusion of (a) the long term portion of the $2.4 billion of additional debt incurred by the Altura partnership, which is recourse only to the Altura assets and (b) approximately $1.2 billion of additional debt incurred by Occidental to fund the cash payment to the sellers. (7) Reflects the inclusion of additional transition and employee-related liabilities and purchase price adjustments for environmental remediation and abandonment reserves resulting from the transaction. (8) Reflects the inclusion of the preferred limited partnership minority interest of the sellers. (9) Reflects the elimination of the historical equity of Altura. * These pro forma financial statements do not reflect reduction in debt from asset sale proceeds including proceeds from the recent disposition of Canadian Occidental Petroleum interests and Peru producing operations. Additionally, these statements do not reflect anticipated cost savings, synergies, changes in realized prices or production rates or certain other adjustments that may result from the acquisition of the Altura interest. 5
(c) Exhibits. 10.1 Purchase and Sale Agreement dated March 7, 2000, by and among Amoco D. T. Company, Amoco X. T. Company, Amoco Y. T. Company, SWEPI LP, Shell Land & Energy Company, Shell Onshore Ventures Inc., Shell K2 Inc., and Shell Everest, Inc., as Sellers, and Occidental Petroleum Corporation, as Buyer. (filed as Exhibit 10.1 of the Current Report on Form 8-K of Occidental previously filed and also dated March 7, 2000 (Date of earliest event reported), File No. 1-9210, and incorporated herein by this reference). 23.1 Consent of Ernst & Young LLP, Houston, Texas. 99.1 Altura Financial Statements. 6
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. OCCIDENTAL PETROLEUM CORPORATION (Registrant) DATE: May 12, 2000 S.P. Dominick, Jr. -------------------------------------------------- S. P. Dominick, Jr., Vice President and Controller (Chief Accounting and Duly Authorized Officer) 7
INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION -------------- ----------- 23.1 Consent of Ernst & Young LLP, Houston, Texas. 99.1 Altura Financial Statements. 8
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements previously filed by Occidental Petroleum Corporation of our report
dated February 17, 2000, with respect to the financial statements of Altura
Energy Ltd. included in this Form 8-K:
Form S-8 (No. 33-5487) 1978 Stock Option
Form S-8 (No. 33-5490) OXY USA Thrift Plan
Form S-8 (No. 33-14662) 1987 Stock Option
Form S-8 (No. 33-23798) Occidental Petroleum Corporation Savings Plan
Form S-3 (No. 33-40054) Dividend Reinvestment
Form S-8 (No. 33-44791) Occidental Chemical Corporation Savings and Investment
Plan
Form S-8 (No. 33-47636) 1987 Stock Option additional shares
Form S-3 (No. 33-60492) Registration of Medium Term Notes, Series B
Form S-3 (No. 33-59395) Registration of $750 million of debt securities
Form S-3 (No. 33-63991) Registration of 2,270,290 shares of its common stock
Form S-8 (No. 33-64719) Occidental Petroleum Corporation 1995 Incentive Stock
Plan
Form S-8 (No. 333-02901) 1996 Restricted Stock Plan for Non-employee Directors
Form S-3 (No. 333-11725) Registration of 3,493,427 shares of its common stock
Form S-3 (No. 333-11897) Registration of2,018,928 shares of its common stock
Form S-8 (No. 333-17879) Midcon Corp. Savings Plan
Form S-3 (No. 333-21019) Registration 118,275 shares of its common stock
Form S-3 MEF (No. 333-49207) Registration of $150 million of debt securities
Form S-3 (No. 333-52053) Registration of $.8 million of debt securities
Form S-3 MEF (No. 333-67385) Registration of $70 million of debt securities
Form S-3 (No. 333-69303) Registration of $1.4 billion of senior debt securities
and subordinated debt securities
Form S-8 (No. 333-72719) Occidental Petroleum Corporation Savings Plan
Form S-8 (No. 333-72721) Occidental Chemical Corporation Savings and Investment
Plan
Form S-8 (No. 333-78031) 1995 Incentive Stock Plan
Form S-8 (No. 333-79613) Oxy Vinyls, LP Savings Plan
Form S-3 (No. 333-79541) Registration of $1 billion of senior debt securities,
subordinated debt securities, depositary shares and preferred securities
/s/ ERNST & YOUNG
Houston, Texas
May 10, 2000
EXHIBIT 99.1
Audited Financial Statements
Altura Energy Ltd.
(a Texas Limited Partnership)
Years ended December 31, 1999 and
1998 and for the period from March 1, 1997 (initial contribution)
to December 31, 1997
with Report of Independent Auditors
ALTURA ENERGY LTD.
FINANCIAL STATEMENTS
CONTENTS
Report of Independent Auditors............................................... 1
Audited Financial Statements
Balance Sheets............................................................... 2
Statements of Income......................................................... 3
Statements of Changes in Partners' Capital................................... 4
Statements of Cash Flows..................................................... 5
Notes to Financial Statements................................................ 6
REPORT OF INDEPENDENT AUDITORS
To the Managers Committee of Altura Energy LLC,
General Partner of Altura Energy Ltd.
We have audited the accompanying balance sheets of Altura Energy Ltd. (the
"Partnership") as of December 31, 1999, 1998 and 1997, and the related
statements of income, partners' capital and cash flows for the years ended
December 31, 1999 and 1998 and for period from March 1, 1997 (initial
contribution) to December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Altura Energy Ltd. as of
December 31, 1999 and 1998, and the results of its operations, its partners'
capital and its cash flows for the years ended December 31, 1999, 1998 and 1997
and for the period from March 1, 1997 (initial contribution) to December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 17, 2000
1
ALTURA ENERGY LTD.
Balance Sheets
(In Thousands)
December 31,
1999 1998 1997
---------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,772 $ 3,804 $ 4,803
Advances to Limited Partner affiliates
(Note 4):
BP Amoco affiliates 28,025 47,545 140,496
Shell affiliates 16,452 27,472 79,814
Accounts receivable:
BP Amoco affiliates, net (Note 4) 86,042 11,969 -
Trade 45,287 48,750 59,403
Other 3,917 7,478 29,877
---------------------------------------------------------------
Total current assets 183,495 147,018 314,393
Property and equipment based on the
successful efforts method
of accounting for oil and gas
properties, net (Notes 2 and 3) 2,038,882 2,129,397 2,265,665
---------------------------------------------------------------
Total assets $ 2,222,377 $ 2,276,415 $ 2,580,058
===============================================================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $ 141,780 $ 103,990 $ 174,490
BP Amoco affiliates, net (Note 4) - - 46,295
---------------------------------------------------------------
Total current liabilities 141,780 103,990 220,785
Dismantlement, restoration and abandonment 90,885 88,551 93,235
(Note 2)
Other noncurrent liabilities 1,517 6,718 3,006
---------------------------------------------------------------
Total liabilities 234,182 199,259 317,026
Commitments and contingencies (Note 6) - - -
Partners' capital 1,988,195 2,077,156 2,263,032
---------------------------------------------------------------
Total liabilities and partners' capital $ 2,222,377 $ 2,276,415 $ 2,580,058
===============================================================
See accompanying notes to financial statements
2
ALTURA ENERGY LTD.
Statements of Income
(In Thousands)
Period from
March 1, 1997
(initial
Years ended contribution) to
December 31, December 31, December 31,
1999 1998 1997
------------------------------------------------------
Revenues:
Oil and gas revenues (Notes 2 and 4) $ 843,231 $ 681,890 $ 754,411
Other 1,481 23,278 33,466
------------------------------------------------------
844,712 705,168 787,877
Costs and expenses:
Lease operating 256,404 287,555 178,005
Selling and administrative 42,340 52,125 32,417
Production and other taxes 64,555 67,166 64,820
Exploration 940 874 3,585
Depletion, depreciation and amortization 145,243 159,622 140,635
Interest 317 483 566
------------------------------------------------------
509,799 567,825 420,028
------------------------------------------------------
Income to Partners $ 334,913 $ 137,343 $ 367,849
======================================================
Income to Limited Partners $ 328,215 $ 134,596 $ 360,993
Income to General Partner $ 6,698 $ 2,747 $ 6,856
See accompanying notes to financial statements
3
ALTURA ENERGY LTD.
Statements of Changes in Partners' Capital
(In Thousands)
Altura LLC,
Limited Partners General Partner Total
------------------------------------------------------
Balance at March 1, 1997 (Initial Contribution) $ 2,190,400 $ 46,600 $ 2,237,000
Net Income 360,993 6,856 367,849
Contributions 35,333 4,370 39,703
Distributions (373,890) (7,630) (381,520)
------------------------------------------------------
Balance at December 31, 1997 2,212,836 50,196 2,263,032
Net Income 134,596 2,747 137,343
Contributions 7,711 29,871 37,582
Distributions (353,905) (6,896) (360,801)
------------------------------------------------------
Balance at December 31, 1998 2,001,238 75,918 2,077,156
Net Income 328,215 6,698 334,913
Contributions - 29,763 29,763
Distributions (444,564) (9,073) (453,637)
------------------------------------------------------
Balance at December 31, 1999 $ 1,884,889 $ 103,306 $ 1,988,195
======================================================
See accompanying notes to financial statements
4
ALTURA ENERGY LTD.
Statements of Cash Flows
(In Thousands)
Period from
March 1, 1997
(initial
Years ended contribution) to
December 31, December 31, December 31,
1999 1998 1997
------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 334,913 $ 137,343 $ 367,849
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 145,243 159,622 140,635
Gain on disposal of assets - (13,359) (24,100)
Noncash carbon dioxide contributions 18,503 22,109 4,370
Noncash selling and administrative in-kind
contributions - 7,711 19,322
Exploration expense 940 874 3,585
Changes in operating assets and liabilities:
Accounts receivable (70,610) (1,316) (59,403)
Other current assets 3,561 22,399 (29,877)
Accounts payable and other accrued expenses 37,790 (116,795) 220,785
Other noncurrent liabilities (2,867) (972) 3,241
------------------------------------------------------
Net cash provided by operating activities 467,473 217,616 646,407
INVESTING ACTIVITIES
Additions to property and equipment (44,408) (94,890) (112,601)
Proceeds from sale of fixed assets - 91,783 26,815
------------------------------------------------------
Net cash used in investing activities (44,408) (3,107) (85,786)
FINANCING ACTIVITIES
Advances to limited partners 30,540 145,293 (220,310)
Distributions to Partners (453,637) (360,801) (381,519)
Contributions - - 46,011
------------------------------------------------------
Net cash used in financing activities (423,097) (215,508) (555,818)
(Decrease) increase in cash and cash equivalents (32) (999) 4,803
Cash and cash equivalents at beginning of year 3,804 4,803 -
------------------------------------------------------
Cash and cash equivalents at end of year $ 3,772 $ 3,804 $ 4,803
======================================================
Supplemental disclosure of cash flow information:
Partner carbon dioxide in-kind contributions $ 29,763 $ 29,871 $ 4,370
Partner selling and administrative in-kind
contributions $ - $ 7,711 $ 19,322
Non cash contribution of assets $ - $ - $ 2,207,000
See accompanying notes to financial statements
5
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Altura Energy Ltd. (the "Partnership") is a Texas limited partnership formed
pursuant to the Agreement of the Limited Partnership of Altura Energy LLC, a
Delaware limited liability company, as General Partner, and Amoco X.T. Company,
Amoco Y.T. Company, Shell Land & Energy Company, Shell Western E&P LP, Shell
Onshore Ventures, Inc., Shell K2, Inc., and Shell Everest, Inc., each as a
Limited Partner. The term of the Partnership expires on February 28, 2007.
Herein the Amoco entities are referred to collectively as "BP Amoco" and the
Shell entities are referred to as "Shell." The Partnership was formed to effect
the combination of oil and gas exploration and production activities in the
Permian Basin area of west Texas and southeast New Mexico of BP Amoco and Shell.
The ownership interests and profit interests of the partners in the Partnership
are as follows:
Altura Energy LLC General Partner 2.0000%
Amoco X.T. Company Limited Partner 46.1171%
Amoco Y.T. Company Limited Partner 16.5196%
Shell Land & Energy Company Limited Partner .4650%
Shell Onshore Ventures, Inc. Limited Partner 1.2527%
Shell K2, Inc. Limited Partner 15.7959%
Shell Everest, Inc. Limited Partner 14.1895%
Shell Western E&P LP Limited Partner 3.6602%
-----------
100.0000%
The General Partner, Altura Energy LLC, is a Delaware limited liability company.
The ownership interests, voting interests, and profits interests of its members
are as follows:
Amoco D.T. Company 63.9150%
Shell Western E&P LP 36.0850%
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
The Partnership considers cash equivalents to consist of highly liquid
investments which are readily convertible to cash and have original maturities
of three months or less.
FASB Statement No. 133 ("SFAS 133"), Accounting for Derivative Instruments and
Hedging Activities, as amended by FASB Statement No. 137, establishes accounting
and reporting standards for derivative instruments and hedging activities.
Effective January 1, 2001, it will require the Partnership to recognize all
derivatives as either assets or liabilities and to measure those instruments at
fair value in its balance sheet. A derivative meeting certain conditions may be
designated as a hedge of a specific exposure. Accounting for changes in a
derivative's fair value will depend on the intended use of the derivative and
the resulting designation. Any transition adjustments resulting from adopting
this statement will be reported in net income or other comprehensive income, as
appropriate, as the cumulative effect of a change in accounting principle. The
Partnership has not yet determined the effect that SFAS 133 will have on its
future financial statements or the amount of the cumulative adjustment, if any,
that will be made upon adopting this new standard. The Partnership does not
anticipate the early adoption of SFAS 133.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting for oil and
gas exploration, development, and producing activities. Costs of property
acquisitions, successful exploratory wells, all development costs, and support
equipment and facilities are capitalized. Unsuccessful exploratory wells are
expensed when determined to be nonproductive. Production costs, overhead and all
exploration costs other than successful exploratory drilling are charged against
income as incurred.
Generally, depreciation of plant and equipment, other than oil and gas
facilities, is computed on a straight-line basis over the estimated economic
lives of the facilities, which for gas plants approximate 20 years. Depletion of
the cost of producing oil and gas properties, amortization of related intangible
drilling and development costs, including capitalized carbon dioxide, and
depreciation of tangible lease and well equipment are recognized using the
units-of-production method.
The Partnership accrues estimated future costs to plug and abandon wells under
the units-of-production method. The charge is reflected in the accompanying
statements of income as part of depreciation, depletion and amortization
expense, while the liability is reflected in the accompanying balance sheets in
dismantlement, restoration and abandonment.
7
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS 121"), the Partnership reviews its long-lived assets to be
held and used, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Environmental Liabilities
The Partnership is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Partnership to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Relative to its producing
assets, the Partnership accrues environmental liabilities on a
units-of-production method over the life of the producing asset. As of December
31, 1999, 1998 and 1997, the Partnership had accrued $28 million, $27 million,
and $26 million, respectively, in connection with these environmental
obligations. The related expenditures will be incurred following abandonment of
the property.
Under the terms of the Assumption and Indemnification Agreement, the limited
partners have indemnified the Partnership for the environmental remediation
obligation of specifically identified sites, as well as environmental conditions
existing at generic sites such as gas plants, field locations, and offsite
disposal sites. Partnership management believes that substantially all
environmental remediation obligations, that may arise relative to the
contributed properties, are subject to the Assumption and Indemnification
Agreement. For any environmental remediation obligations that are not
indemnified, liabilities are recorded when environmental assessment and/or
remediation is probable and the costs can be reasonably estimated. Such
liabilities are generally undiscounted unless the timing of cash payments for
the liability are fixed or reliably determinable. The Partnership believes that
the costs for compliance with current environmental laws and regulations have
not had and will not have a material effect on the Partnership's financial
position or results of operations.
8
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
Financial instruments which subject the Partnership to concentrations of credit
risk consist principally of trade receivables. A significant portion of the
Partnership's trade receivables relate to customers in the oil and gas industry,
and, as such, the Partnership is directly affected by the economy of that
industry. However, the credit risk associated with trade receivables is
minimized since the Partnership's primary customers are its Partners and related
affiliates. The Partnership has established ongoing procedures to monitor the
creditworthiness of customers but generally requires no collateral.
Historically, the Partnership has not experienced significant losses on trade
receivables.
Revenue Recognition
The Partnership uses the sales method of accounting for crude oil and natural
gas revenues. Under this method, revenue is recorded on the basis of oil and gas
actually sold by the Partnership. The Partnership records revenue for its share
of gas sold by other owners that cannot be balanced in the future due to
insufficient remaining reserves. The Partnership also reduces revenue for gas
sold by the Partnership that cannot be balanced in the future due to
insufficient remaining reserves.
Income Taxes
The financial statements reflect no provision for U.S. federal and state income
taxes since such taxes are the liabilities of the Partners.
NOTE 3 - PROPERTY AND EQUIPMENT
Major property classifications as of December 31, 1999 and 1998 are as follows
(in thousands):
1999 1998 1997
------------------------------------------------------
Proved properties $ 6,255,722 $ 6,190,951 $ 6,213,370
Unproved properties 24,105 21,137 20,626
Support equipment and facilities 66,771 52,132 44,671
------------------------------------------------------
6,346,598 6,264,220 6,278,667
Less accumulated depletion, depreciation and
amortization (4,307,716) (4,134,823) (4,013,002)
------------------------------------------------------
$ 2,038,882 $ 2,129,397 $ 2,265,665
======================================================
9
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Partnership has entered into various
agreements with its Partners and related affiliates to sell crude oil, natural
gas and related products, as well as to purchase carbon dioxide (see Note 6 -
Commitments and Contingencies).
The Partnership sells substantially all crude oil production to an affiliate of
BP Amoco at posted prices under an agreement with an initial term expiring March
2007.
The Partnership advances cash to Limited Partner affiliates prior to remitting
the funds via a formal cash distribution each quarter as provided by the
Revolving Credit and Cash Management Agreement executed with Shell and BP Amoco,
respectively. These advances are included in advances to Partners and bear
interest at the rate of LIBOR less one-half of one percent (.50%).
The General Partner contributions represent in-kind contributions of carbon
dioxide at a price estimated to be the fair value by Partnership management.
The Limited Partner contributed accounting and administrative services to the
Partnership in 1998 and 1997 that were valued based on the actual costs
incurred.
Following is a list of significant related party amounts that are not separately
identified in the financial statements (in thousands):
BP Amoco Shell
-------------------------------------
Year 1999
Oil and gas revenues $ 718,650 $ 23,402
Accounting services $ 12,000 $ -
Year 1998
Oil and gas revenues $ 643,643 $ -
Accounting services $ 11,700 $ -
Year 1997
Oil and gas revenues $ 660,810 $ -
10
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - BENEFIT PLANS
The Partnership provides pension and post employment healthcare benefits to all
eligible employees and retirees. Pension benefits are based on a partnership
contributed percentage of employee compensation and a stipulated interest rate.
In addition, certain employees who were previously employed by affiliates of BP
Amoco and Shell qualify for a pension transition benefit based on years of
service and compensation during the last years of employment. Contributions to
the pension plan are not less than the minimum funding standards set forth in
the Employees Retirement Income Security Act of 1974, as amended. The portion of
the funded plan's assets held in fixed-income and short-term securities and
equity securities was each approximately 50% as of December 31, 1999 and 1998.
The Partnership does not currently pre-fund healthcare benefit costs.
11
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - BENEFIT PLANS (CONTINUED)
The following pension credits and funded status are based on information
provided by the Partnership's actuary:
1999 1998 1997
------------------------ ------------------------ ------------------------
Pension Other Pension Other Pension Other
Benefits Benefits Benefits Benefits Benefits Benefits
------------------------ ------------------------ ------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of the year $ 37,503 $ 5,919 $ 22,953 $ 5,476 $ 18,579 $ 4,747
Service cost 4,577 326 4,224 341 2,534 253
Interest cost 2,446 398 1,716 411 1,302 297
Actuarial loss/(gain) (4,728) (992) 8,680 (306) 538 179
Benefits paid (2,511) (27) (70) (3) -- --
------------------------ ------------------------ ------------------------
Benefit obligation at end of year 37,287 5,624 37,503 5,919 22,953 5,476
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 9,376 -- 4,530 -- -- --
Actual return on plan assets 574 -- 815 -- 92 --
Employer contributions 4,826 -- 4,101 -- 4,438 --
Benefits paid (2,511) -- (70) -- -- --
------------------------ ------------------------ ------------------------
Fair value of plan assets at end of year 12,265 -- 9,376 -- 4,530 --
Funded status (25,022) (5,624) (28,127) (5,919) (18,423) (5,476)
Unrecognized actuarial loss/(gain) 1,762 (1,206) 6,339 (214) (2,217) 180
Unrecognized prior service cost 15,078 3,387 16,491 3,734 20,119 4,433
------------------------ ------------------------ ------------------------
Net amount recognized (8,182) (3,443) (5,297) (2,399) (521) (863)
Weighted average assumptions as of December 31:
Discount rate 8.00% 8.00% 6.75% 6.75% 7.50% 7.30%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 5.00% -- 5.00% -- 5.00% --
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost 4,577 326 4,224 341 2,534 253
Interest cost 2,446 399 1,716 411 1,302 297
Expected return on plan assets (929) -- (480) -- (200) --
Amortization of prior service cost 1,413 346 1,588 376 1,323 314
Recognized actuarial loss 203 -- -- -- -- --
Recognized curtailment loss -- -- 1,830 410 -- --
------------------------ ------------------------ ------------------------
Net periodic benefit cost 7,710 1,071 8,878 1,538 4,959 864
12
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - BENEFIT PLANS (CONTINUED)
Assumed health care cost trend rates have a significant effect on the amounts
reported for the healthcare plan. A one-percentage-point change in assumed
healthcare cost trend rates would have the following effects (in thousands):
1-Percentage-Point 1-Percentage-Point
Increase Decrease
---------------------------------------------
Effect on total of services and interest cost components $ 119 $ (101)
Effect on the postretirement benefit obligation $ 882 $ (754)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Partnership has various long-term operating leases extending through the
year 2007. Future payments under the non-cancelable lease are as follows (in
thousands):
2000........................................................... $ 3,176
2001........................................................... 2,823
2002........................................................... 2,765
2003........................................................... 2,602
2004........................................................... 1,189
------------
Total.......................................................... $ 12,555
============
Rent expense for the years ended December 31, 1999, 1998 and the 10 months ended
December 31, 1997 totaled approximately $1.5 million, $1.5 million and $1.25
million, respectively.
13
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Long-Term Carbon Dioxide Purchase Agreements
The Partnership is obligated under several long-term carbon dioxide purchase
agreements with affiliates of its Limited Partners. These agreements commit the
Partnership to the purchase of approximately 215 billion cubic feet (BCF) of
carbon dioxide, at index prices ranging approximately between $.50 per thousand
cubic feet (MCF) and $.90 per MCF. Subject to price fluctuations, total payments
under these obligations are estimated to be approximately $130 million to $180
million for January 1, 2000 through December 31, 2004. Following are the
Partnership's carbon dioxide purchases from affiliates of its Limited Partners:
BP Amoco Shell
-------------------------------------
Carbon dioxide purchases:
1999 $ 15,290 $ 24,766
1998 $ 21,600 $ 20,725
1997 $ 34,477 $ 11,537
Contingencies
The Partnership has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that
there are meritorious defenses against these contingencies and that the probable
resolution of such contingencies will not have a material adverse effect on the
financial position or results of operations of the Partnership.
NOTE 7 - ALTURA ENERGY LTD. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION
(UNAUDITED)
The following information is being provided as supplemental information in
accordance with certain provisions of SFAS No. 69, Disclosures about Oil and Gas
Producing Activities.
Costs Incurred
Development costs include the costs of drilling and equipping development wells,
capitalized carbon dioxide, and certain other injected materials for enhanced
recovery projects and facilities to extract, treat, gather and store oil and
gas. Development costs include administrative expenses and depreciation
applicable to support equipment associated with these activities. Costs incurred
in development activities were $65,627, $52,418 and $170,856 in 1999, 1998 and
1997, respectively.
14
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - ALTURA ENERGY LTD. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION
(UNAUDITED) (CONTINUED)
Proved Reserves
The following table sets forth the net proved reserves of the Partnership as of
December 31, 1999, 1998 and 1997, respectively, and the changes therein for the
years then ended. The reserve information was provided by the Partnership's
engineers. All of the Partnership's oil and natural gas producing activities are
located in the United States.
Oil Gas
(MBBLS) (MMCF)
------------------------------------
Balance at December 31, 1996 991,924(1) 494,405
Production (44,400) (30,600)
Revisions (11,072) (8,843)
Improved recovery 2,943 2,104
Purchases (sales) - net (1,195) (10,566)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 938,200(1) 446,500
Production (44,500) (52,300)
Revisions (138,103) 2,532
Improved recovery 45,434 (3,994)
Purchases (sales) - net (21,982) (66,484)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 779,049(1) 326,254
Production (44,017) (35,792)
Revisions 51,886 138,251
Improved recovery 70,557 14,745
Purchases (sales) - net 3,551 (4,074)
------------------------------------
Balance at December 31, 1999 861,026(1) 439,384
Proved Developed 12/31/99 719,720 363,957
Proved Developed 12/31/98 693,100 296,800
Proved Developed 12/31/97 796,851 365,318
(1) Excludes non-leasehold natural gas liquids production attributable to
processing plants owned by the Partnership.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The information that follows has been developed pursuant to procedures
prescribed by SFAS No. 69 and utilizes reserve and production data estimated by
the Partnership's petroleum engineers. Reserve estimates are inherently
imprecise and estimates of new discoveries are more imprecise than those of
producing oil and natural gas properties. Accordingly, these estimates are
expected to change as future information becomes available.
15
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - ALTURA ENERGY LTD. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION
(UNAUDITED) (CONTINUED)
The estimated discounted future net cash flows from estimated proved reserves
are based on prices and costs as of the date of the estimate unless such prices
or costs are contractually determined at such date. Oil and gas production
revenues reflect the market prices of net production sold or transferred, with
appropriate adjustments for royalties and other contractual provisions.
Production costs are lifting costs incurred to operate and maintain productive
wells and related equipment, including such costs as operating labor, repairs
and maintenance, materials, supplies and fuel consumed. Also included in
production costs are operating costs of field natural gas liquids plants.
Production costs include related administrative expenses and depreciation
applicable to support equipment associated with production activities. Actual
future prices and costs may be materially higher or lower. Actual future net
revenues also will be affected by factors such as actual production, supply and
demand for oil and natural gas, curtailments or increases in consumption by
natural gas purchasers, changes in governmental regulations, and the impact of
inflation on costs.
(In Thousands)
December 31,
1999 1998
------------------------------------
Future cash flows $ 21,154,000 $ 7,735,000
Future production costs 5,710,000 5,039,000
Future development costs 655,000 734,000
------------------------------------
Future net cash flows 14,789,000 1,962,000
Discount to present value at 10% per annum 8,742,000 1,302,000
------------------------------------
Standardized measure of discounted future net cash flows $ 6,047,000 $ 660,000
====================================
16
ALTURA ENERGY LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - ALTURA ENERGY LTD. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION
(UNAUDITED) (CONTINUED)
Changes in Standardized Measure of Discounted Future Net Cash Flows
The following table sets forth the principal changes in standardized measure of
discounted future net cash flows for the year ended December 31 are as follows
(in thousands):
1999 1998 1997
------------------------------------------------------
Balance at the beginning of the year $ 660,000 $ 2,331,000 $ 5,773,000
Sales of oil and gas, net of production costs (522,000) (405,000) (528,000)
Changes in prices and production costs 5,127,000 (1,237,000) (2,308,000)
Revision of previous quantity estimates (275,000) 11,000 (408,000)
Current year discoveries, extension and
improved recovery 545,000 (300,000) 12,000
Development costs incurred during the period 52,000 52,000 171,000
Accretion of discount 66,000 233,000 577,000
Other 394,000 (25,000) (958,000)
------------------------------------------------------
Net change 5,387,000 (1,671,000) (3,442,000)
------------------------------------------------------
Balance at December 31, 1999 $ 6,047,000 $ 660,000 $ 2,331,000
======================================================
19